Africa still a success story for Nampak

The cooling of economic growth on the continent, mainly brought about by the commodities rout, has failed to dampen Nampak’s performance.

Its operations on the continent excluding SA, now account for 47% of group trading profit, up from 38% last year.

Nampak’s big beverage can production lines in Nigeria and Angola are capable of churning out about 2.7-billion cans a year between them.

Nampak CEO Andre de Ruyter said the group’s foray into Africa had been vindicated by African revenue growth of 30% in the interim period from the period last year — despite foreign exchange losses. Margins were much higher on the continent than in SA, boosted by the strong growth in turnover.

He said on Wednesday that the group was saving R120m a year on better procurement with major suppliers. It was also reducing its cost base, boosting operational performance and strengthening its balance sheet by restructuring debt, conserving cash and monetising noncore property.

"It was a pretty solid set of results under challenging circumstances," he said. The reduction of interest-bearing debt and a resultant improvement in the group’s gearing levels were identified as a key strategic objective in respect of volatile exchange rates.

In its interim results to the end of March, the diversified packaging group saw revenue rise 10% to R9.4bn, as group trading profit of R989m shot up 17% and trading profit from the rest of the continent of R462m rocketed 45% from the same period last year.

But the market was not impressed with the results. The share price fell 13% on the day.

Nampak’s operating profit of R870m was down 7%, hit by abnormal losses of R119m, nearly all of which stemmed from the group’s Angolan currency woes. This meant headline earnings per share were only a sluggish 4% higher than in the same period last year.

"The results are very indifferent, impacted by substantial forex losses in Africa. There is high gearing due to major capex spend. This has resulted in the forced sale of property to reduce gearing, which peaked at 91%," Ron Klipin, portfolio manager at Cratos Capital, said.

"Weak consumer demand is a major headwind for the current year."

However, Klipin also said that gearing would be ameliorated by a R1.7bn injection from the sale and lease back of noncore properties that would be used to retire debt and other group liabilities.

He said R1.5bn of the group’s cash was trapped in Angola and Nigeria, where Nampak continued to experience delays in timeously converting its bank balances to US dollars, due to hard currency shortages.

De Ruyter said the group was rationalising operations and was in negotiations to shut its beverage can line in Durban by the end of this year. This would save R40m, as the group’s new aluminium beverage can lines ramped up in Gauteng.

The group had been cutting costs to the bone, including by not paying an interim dividend. This came as R410m in cash was released in the period, as a result of stringent management of inventories and trade receivables. Meanwhile, the group had bank balances, deposits and cash of R2.4bn.

But net finance costs for the period shot up 44% to R239m, due to increased interest rates in SA, higher-on-average borrowings and the translation of dollar-denominated debt.

The past five-and-half years have been characterised by strong capex, divestitures and investments in the rest of Africa. This lifted group net debt considerably, from R16m to R7.4bn and net gearing from 0% to 74% in this period.